The Pension Benefit Guaranty Corporation is delaying the projected insolvency date for its multiemployer insurance program by three years, thanks to radical new funding provisions passed in the Multiemployer Pension Reform Act of 2014.
The multiemployer program, which insures the pensions of more than 10 million participants in collectively bargained plans, is now expected to be insolvent in 2025, as opposed to 2022, according to findings released in PBGC’s latest projection report.
The program’s fiscal year 2014 deficit of $42.5 billion is now projected to be $28 billion by 2024.
Increased premiums payments authorized under the Multiemployer Pension Reform Act explain much of the reduction in the projected deficit, according to a PBGC release.
The Multiemployer Pension Reform Act, passed in the waning moments of the last Congressional session, doubled PBGC premiums from what they otherwise would have been beginning in 2015 and going forward, according to the report.
New MPRA premium requirements accounted for most the $1.4 billion dollar deficit reduction projected for fiscal year 2015.
The MPRA also allows plans expected to be insolvent in the next 20 years to reduce promised benefits to retirees, so long as doing so will assure the plans remain solvent and that those plans preserve benefits at least 10 percent higher than the benefits guaranteed by PBGC.
The option to cut benefits, which would have to first be authorized by the Department of Treasury and then be voted on by affected union members, presents sponsors and participants with a “difficult choice,” according to the projection report: cut benefits on their own, or take no action and risk deeper cuts upon plan insolvency.
Participants in future insolvencies covered by PBGC will experience “significant benefit reductions,” said the report.
If the worst-funded plans do not take action by suspending benefits, or make use of new provisions that allow PBGC to partition some benefits in the worst-funded plans, then the multiemployer program deficit is expected to be $44.3 billion by 2025.
But even when accounting for new premiums, and assuming the worst-funded plans make use of the new benefit suspension and partition tools afforded in MPRA, the program still stands a greater-than-50-percent chance of insolvency by 2025.
The risk of insolvency rises rapidly in the ensuing years, according to the report.
The outlook for PBGC’s single-employer program remains likely to improve over the next decade, according to the projections report.
Under new estimates, the single-employer program’s fiscal year 2014 deficit of $19.3 billion is expected to shrink to $4.9 billion by 2024, an almost $3 billion improvement over the 2023 deficit projection PBGC made last year.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
